Compiled By:

Independence and Md. Mahedi Hasan FCA CPFA

Adjunct Faculty
Quality Controls Department of Accounting and Information
Systems
Bangladesh University of Professionals (BUP)
 Independence

Independence is critical for ensuring

"Independence for Auditor" refers to
the integrity and reliability of the
the concept that an auditor must be
audit process, which in turn helps
free from any influence, interest, or
maintain the confidence of
relationship that could compromise
stakeholders in the financial
their objectivity and impartiality when
statements and other reports
conducting an audit.
produced by the entity being audited.
Key Aspects of Auditor Independence
Independence in Mind: The auditor's state of mind should be such that they are able to make an unbiased audit decision.
Independence in Mind and Appearance: Independence in Appearance: The auditor should avoid situations that might cause an external party to doubt their
impartiality.

Financial Independence: The auditor must not have any financial interests, direct or indirect, in the client they are auditing. This includes owning
shares or having any form of financial connection with the client.

Non-Audit Services: Providing non-audit services (e.g., consulting, tax services) to an audit client can create conflicts of interest. Regulations often
restrict the types of non-audit services that an auditor can provide to an audit client to maintain independence.

Personal Relationships: Auditors must avoid personal relationships with the client’s management or employees that could impair their objectivity.
This includes familial relationships or close friendships.

Rotation of Auditors: Some jurisdictions require the rotation of audit partners or firms after a certain period to reduce the risk of over-familiarity
and maintain independence.

Regulatory and Professional Standards: Various standards and guidelines, such as those from the International Federation of Accountants (IFAC),
FRC, ICAB, and others, provide detailed requirements for auditor independence.

Disclosure: Auditors are often required to disclose any potential threats to their independence before accepting an engagement. This transparency
helps stakeholders assess whether the auditor can remain impartial.
Why do independence and objectivity matter so much?

The expectations of those directly affected, particularly the members of

the company. The audit should be able to provide objective assurance
that the directors can never provide on the financial statements.

The public interest. Companies are public entities, governed by rules

requiring the disclosure of information.
 Confidentiality (How to Maintain)

DO NOT DISCUSS CLIENT DO NOT DISCUSS CLIENT DO NOT LEAVE AUDIT DO NOT LEAVE AUDIT DO NOT REMOVE DO NOT WORK ON
MATTERS WITH ANY MATTERS WITH FILES UNATTENDED (AT A FILES IN CARS OR IN WORKING PAPERS FROM ELECTRONIC WORKING
PARTY OUTSIDE OF THE COLLEAGUES IN A PUBLIC CLIENT’S PREMISES OR UNSECURED PRIVATE THE OFFICE UNLESS PAPERS ON SYSTEMS
ACCOUNTANCY FIRM (FOR PLACE ANYWHERE) RESIDENCES STRICTLY NECESSARY THAT DO NOT HAVE THE
EXAMPLE, FRIENDS AND REQUISITE PROTECTION
FAMILY, EVEN IN A
GENERAL WAY)
Information 01 02 03
Can be Consent has been
obtained from the
client, employer or
There is a public
duty to disclose, or
There is a legal or
professional right or
duty to disclose.

Disclosed other proper

source, or
 Where disclosure is permitted by law and is authorised by the client
or the employer, for example where the auditor has uncovered a
fraud, and the client agrees that the matter should be referred to
the police.

Circumstances
is or may be Where disclosure is required by the law. Examples include,

required to Reporting clients involved in terrorist activities to the police.

disclose
Where there is a professional duty or right to disclose, when not
prohibited by law. An accountant may defend himself in a
negligence claim, for example. The Code of Ethics states that a
professional accountant may disclose confidential information to
third parties if the disclosure can be justified in ‘the public interest’
and is not contrary to laws and regulations
 Leadership Responsibility for Quality: Tone at the Top and
Quality Objectives

Acceptance and Continuance of Client Relationships: risk

assessment and Engagement Terms

Human Resources: Competence and Capabilities and Work

Allocation

Quality Controls Engagement Performance & Monitoring: Audit Methodology and

within Audit Firms Internal Quality Reviews

Documentation and Record Keeping

Continuous Improvement

Use of Technology
 Financial Reporting Council (FRC)

Role: The FRC is the primary regulatory body overseeing the audit profession in Bangladesh. Established under the Financial
Reporting Act 2015, the FRC is responsible for regulating auditors, ensuring compliance with accounting and auditing
standards, and monitoring the quality of financial reporting.

Functions:
Monitoring and •Quality Review: The FRC conducts regular quality reviews of audit firms to assess their adherence to established auditing standards and practices.
•Regulatory Actions: If deficiencies are found during inspections, the FRC has the authority to impose sanctions, including fines, license suspensions, or revocations.

Enforcement audit
profession in
Bangladesh Institute of Chartered Accountants of Bangladesh (ICAB)

(Regulatory Bodies)
Role: ICAB is the professional body responsible for the regulation, education, and discipline of Chartered Accountants in
Bangladesh. It plays a crucial role in maintaining the standards of the auditing profession.

Functions:
•Monitoring Compliance: ICAB monitors the performance of its members through regular inspections, peer reviews, and assessments of compliance with the ICAB
Code of Ethics and other professional standards.
•Continuing Professional Education (CPE): ICAB mandates CPE for its members to ensure they stay updated with the latest developments in auditing standards and
practices.
•Disciplinary Actions: ICAB has the authority to initiate disciplinary proceedings against members who violate professional standards or engage in unethical
practices.
 Monitoring Mechanisms

Process: The FRC, often in

Focus Areas: AQRs typically assess
collaboration with ICAB, conducts
areas such as the adequacy of audit
AQRs to evaluate the quality of audit
documentation, the auditor’s
work performed by audit firms.
Audit Quality Review (AQR) independence, the audit firm's
These reviews focus on the firm’s
internal quality control systems, and
compliance with International
the appropriateness of audit
Standards on Auditing (ISA) and
opinions issued.
other relevant guidelines.

Self-Regulation: Larger audit firms Engagement Reviews: Firms may

often have internal quality control also conduct engagement reviews
processes that include regular where senior auditors review the
Internal Monitoring by Audit Firms internal audits, peer reviews, and work of junior staff to ensure that
compliance checks to ensure that audits are conducted in accordance
their audit practices meet the with the firm’s policies and
required standards. professional standards.
Enforcement Actions

Penalties: The FRC can impose

License Revocation: In severe cases
financial penalties on audit firms or Public Reprimands: The FRC may also
of non-compliance, the FRC has the
individual auditors found in violation issue public reprimands to audit firms
power to revoke the license of audit
Sanctions by FRC of auditing standards. These penalties or auditors who fail to meet
firms or individual auditors,
are meant to deter non-compliance professional standards, thereby
effectively barring them from
and encourage adherence to best damaging their reputation.
practicing.
practices.

Investigations: ICAB investigates Disciplinary Committee: ICAB’s

complaints against its members Disciplinary Committee is responsible Appeal Process: Members who are
regarding professional misconduct or for hearing cases of alleged disciplined by ICAB have the right to
Disciplinary Actions by ICAB breaches of ethical standards. These misconduct. If found guilty, auditors appeal the decision. The appeal
investigations can be initiated by may face penalties such as fines, process is conducted by a separate
clients, regulatory bodies, or the suspension, or expulsion from ICAB committee to ensure fairness.
public. membership.
Challenges in
Monitoring and Resource Constraints: The
effectiveness of monitoring and
Compliance Gaps: Ensuring
compliance across a wide range of
Evolving Standards: The auditing
profession is continually evolving

Enforcement enforcement efforts can be

hampered by resource
constraints, including limited
audit firms, particularly smaller
firms, can be challenging. Smaller
firms may lack the resources to
with new standards and
regulations. Keeping up with
these changes requires ongoing
personnel and financial resources implement robust internal quality education and adaptation, which
at regulatory bodies like the FRC. controls, leading to can be challenging for both
inconsistencies in audit quality. regulators and practitioners.
 Conflict of Interest
• Conflict of interest in the audit profession refers to
situations where an auditor's ability to act
impartially and objectively may be compromised
due to personal interests, relationships, or
external pressures.
• Ensuring that auditors remain independent and
free from conflicts of interest is critical to
maintaining the credibility and integrity of the
audit process.
 Compromised Objectivity and Independence

• Bias in Audit Judgment: Conflicts of interest can lead to

bias, where the auditor’s judgment is swayed by personal
interests rather than by objective evidence.
• Loss of Credibility: An auditor’s perceived or actual conflict
of interest can damage their credibility, leading to a loss of

Implications of public trust in the audit process.

• Regulatory Repercussions: Failure to manage conflicts of
interest appropriately can lead to regulatory sanctions,

Conflicts of
including fines, penalties, or even suspension of the
auditor’s license.

Impact on Financial Reporting

Interest • Misleading Financial Statements: When conflicts of interest

are not managed, they can result in misleading financial
statements, which can have significant consequences for
stakeholders, including investors, creditors, and the public.
• Market Reactions: Disclosure of conflicts of interest,
especially if they have led to compromised audit quality,
can lead to negative market reactions, including stock price
declines or loss of investor confidence.
Managing Conflicts of Interest

Independence Policies

•Firm-Level Independence: Audit firms must establish strict independence policies that prohibit financial, business, and personal relationships that could impair objectivity.
•Rotation of Audit Partners: To mitigate conflicts of interest, audit firms often rotate lead partners on audit engagements to avoid long-term relationships that could
compromise independence.
•Segregation of Services: Firms should clearly separate audit services from non-audit services to avoid conflicts arising from dual service provision.

Disclosure and Transparency

•Client Disclosure: Auditors should disclose any potential conflicts of interest to the client’s audit committee or those charged with governance, ensuring transparency and
allowing the client to take appropriate action.
•Public Disclosure: In some cases, especially for public companies, it may be necessary to disclose conflicts of interest in the company’s financial statements or in public
filings.

Independence Reviews

•Internal Reviews: Audit firms should conduct regular internal reviews to assess compliance with independence policies and to identify any potential conflicts of interest.
•External Audits: Regulatory bodies or external reviewers may also conduct audits of an audit firm’s independence practices to ensure compliance with professional
standards.

Ethical Training and Awareness

•Regular Training: Audit firms should provide regular training on ethical standards, conflict of interest management, and independence to ensure that all employees are
aware of the potential risks and how to manage them.
•Whistleblowing Mechanisms: Firms should have mechanisms in place for employees to report potential conflicts of interest without fear of retaliation, enabling early
identification and management of these risks.
Challenges in Managing Conflicts of Interest

Large, Multifaceted Clients: Managing conflicts of

interest can be particularly challenging for firms that
Complex work with large, multifaceted clients, where multiple
relationships (e.g., audit, consulting, tax advisory) exist
Client within the same organization.
Global Operations: For global audit firms, conflicts of
Relationships interest may arise in different jurisdictions, requiring
careful coordination and compliance with local
regulations.

Adapting to Change: As business practices and audit Evolving

standards evolve, auditors must continuously adapt
their approaches to managing conflicts of interest, Standards
requiring ongoing education and awareness.
and Practices
Obtaining Professional Work
Client Acquisition Ethical Considerations

• Tendering and Bidding: Audit firms often obtain • Independence and Objectivity: When pursuing new
professional work through a competitive tendering work, audit firms must ensure that their
process, where they submit bids to potential clients. independence and objectivity are not compromised.
The process involves preparing a proposal that For example, they must assess whether accepting a
outlines the firm’s qualifications, experience, new client could create conflicts of interest or lead to
approach to the audit, and proposed fees. undue influence from the client.
• Client Referrals: Firms may also gain new clients • Competence: Firms should only accept engagements
through referrals from existing clients, professional that they are competent to perform, ensuring that
networks, or other stakeholders such as banks, legal they have the necessary skills, expertise, and
advisors, or other professionals. resources to deliver high-quality services.
• Direct Solicitation: While direct solicitation of work is • Transparency: All proposals and engagements should
generally discouraged to maintain professionalism, be transparent, with clear communication regarding
certain controlled and ethical approaches, such as the scope of work, fees, and expectations.
networking or responding to inquiries, are
acceptable.
 Advertising

Professional Standards and Permitted Advertising Practices Prohibited Advertising Practices

Regulations
ICAB and FRC Guidelines: In Bangladesh, the Informational Advertising: Firms may advertise in Comparative Advertising: Making direct
Institute of Chartered Accountants of Bangladesh ways that provide useful information to the public, comparisons with competitors, especially in a
(ICAB) and the Financial Reporting Council (FRC) such as explaining the services they offer, their derogatory manner, is generally prohibited.
provide guidelines on how audit firms can areas of expertise, and the qualifications of their Guarantees of Outcomes: Firms should not
advertise their services. These guidelines are personnel. advertise guaranteed outcomes or results, as this
designed to maintain the dignity of the profession Digital Presence: Maintaining a professional can mislead clients and undermine the
and ensure that advertising does not mislead or website, publishing thought leadership articles, profession’s integrity.
exaggerate. and engaging in social media are common ways Undue Influence: Advertising should not create
Ethical Advertising: Advertisements should be audit firms advertise their services ethically. any undue influence or pressure on potential
factual, dignified, and in good taste. They should Sponsorships and Events: Sponsoring events, clients to select the firm’s services.
not make false claims about the firm’s capabilities participating in conferences, and conducting
or denigrate competitors. seminars or webinars are also accepted forms of
advertising, as they provide value to the audience
and enhance the firm’s reputation.
Publicity
Reputation Management: Publicity for audit firms should aim to build
and maintain a strong professional image. This includes public relations
activities such as publishing reports, engaging in community service, and
participating in professional forums.
Maintaining Professional Image Media Relations: Firms can engage with the media by issuing press
releases, providing expert commentary on relevant topics, and
contributing to articles or interviews, as long as these activities uphold
the profession’s standards.

Research and Publications: Publishing research papers, audit insights,

whitepapers, and other thought leadership materials helps build a firm’s
Thought Leadership and reputation as an expert in the field. This form of publicity is both ethical
and effective in attracting new clients.
Publications Professional Journals: Contributing articles to professional journals and
magazines is another way for firms to gain publicity while contributing to
the profession's body of knowledge.

Industry Awards: Receiving and promoting industry awards and

recognitions can also serve as a form of publicity. However, firms should
ensure that the awards are credible and relevant to their professional
capabilities.
Awards and Recognition Client Testimonials: Using client testimonials in a responsible and
truthful manner is another way to enhance a firm’s public image. It’s
important that these testimonials are accurate and do not violate
confidentiality agreements.
 Balancing Promotion and Ethics: Audit firms must
balance the need to promote their services with
the ethical obligations of their profession.

Challenges Overstepping in advertising or publicity can lead to

reputational damage and regulatory sanctions.

and Best
Practices Adapting to Digital Trends: As digital marketing
evolves, audit firms need to adapt their strategies
while ensuring compliance with ethical guidelines.
This includes responsible use of social media,
search engine marketing, and content marketing.
Thank you